The Commonwealth Bank has a suggestion on how to solve Australia's housing affordability problem

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The Commonwealth Bank thinks that Australian house prices will continue to rise in 2017, thanks in part to ongoing investor activity.

As a result, it says that housing affordability will continue to worsen, noting that a housing deposit “continues to move well beyond the reach of most households”.

That’s a fairly punchy statement, particularly from Australia’s largest housing lender.

Housing affordability — it’s a debate that will not go away, fueled by rapid house price growth in Australia’s southeastern capitals and posturing from many of Australia’s politicians who have become experts at floating thought bubbles rather than addressing the actual issue.

They’ve been releasing more thought bubbles than usual in recent weeks, ranging from potentially subsidising interest rates to allowing owner-occupier mortgage interest to be deductible from personal income tax.

All good ideas will be examined is the well rehearsed spiel delivered, as it has countless times before.

With the government looking for ideas, Michael Workman, senior economist at the Commonwealth Bank, has obliged, delivering a blunt assessment on how the government can control the demand side of the housing market, potentially helping to alleviate affordability concerns.

Here it is:

Investors will continue to be a significant influence on housing prices in 2017 and onwards until Federal tax laws favouring leveraged housing investment are reformed. The Federal Government controls some of the significant demand factors for housing markets. Namely, population growth via migration and the spectrum of tax and foreign investment policies that significantly inflate demand for existing and new housing. Housing affordability can be improved, via stabilising growth in house prices and rents, by gradual reforms to both supply and demand issues.

It certainly seems like a sensible starting point, but one that may not improve the prospects for election for any political party that takes up the suggestion.

And therein lies the underlying issue that first needs to be addressed if housing affordability is to be addressed.

NOW READ: CBA: Australian housing affordability looks set to worsen

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